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Motilal Oswal, CMD, and Raamdeo Agrawal, Co-Founder MOFSL, tell Ajaya Sharma of ET Now that they are no strangers to split-up rumours but there is not an
iota of truth there. By March 2019, we will complete a clean-up of Aspire books, says Motilal Oswal.

Edited excerpts:

What went wrong with Aspire Home Finance?

Motilal Oswal: One has to go through a learning curve for any business. As a promoter, I never had any experience in terms of any lending business. So, we created a very experienced team and the team in its wisdom did not really do the right things in terms of putting the right kind of people and the right kind of organised structure. We can see these two flaws looking back.

One was that credit being managed by the sales team. The branch credit manager was reporting to the branch manager which is a fundamental flaw, looking at industry best practices.

Second thing is that we never created a collection vertical because in a lending organisation you are a more collection organisation rather than lending organisation because lending is easy but the money is made when you collect the money.

These are the two learnings which we got and we have set it right. The structure is vertical now. The whole 350 people collections teams is working 24x7 there. We have added a lot of new people. The risk containment unit (RCU) was not there. We have added that. Technical teams were outsourced. We actually believed in vendors’ certificates. Many of the vendors did not give the right kind of valuations. These are a few learnings.

Where do we stand in terms of financial damage because of business decisions which Aspire took. For how many more quarters would the repair work go on?

Motilal Oswal: Let me tell you that by March 2019, we will have complete a clean-up of the books. The books will start shaping up. We have seen the sales growth coming back March ’19 will be far better than March ’18. In the next couple of quarters, we will be able to contain all the issues and go full force on the sale side also.

What is the plan now? You must have reworked your plan since you started. We understand that the NPA levels have gone down from 8 odd per cent to 6.5 per cent and you are on road to provide for slightly more. What is the new target?

Motilal Oswal: When we came to really understand the situation, the first thing we said was let us shut the sales engine. We did not shut it, we slowed down drastically so that we understand what is the size of the problem. Now for last six months, we have slowly restarted the search engine and as I said, the second half will be far better than the first half.

Let us talk about the asset management end of the business that is in focus right now because more competitors and industry peers are getting listed. Do you have similar plans?

Motilal Oswal: There are lots of plans but it is better that Raamdeo takes care of the AMC business. Maybe, he can respond.

What are your plans at Motilal AMC?

Raamdeo Agrawal: Motilal Oswal AMC is doing well. It is probably the fastest growing AMC and it is an equity only AMC. It is somewhat different in purpose and commitment and it goes with the overall ethos of Motilal Oswal as an equity power house. We think equity, live equity, drink equity. The 100% personal net worth of Moti and mine and 100% net worth of the company is fully committed to equities. That is the kind of culture we have and it is a brilliant opportunity.

I have been in market over last 30-40 years. This company itself is 30- years old. I think next 30 years will be multiple times more exciting for equities and for those who have the courage and who have the guts to take equity risk (I call it fun of equity).

We have weathered all kinds of storms -- whether it is the Harshad Mehta bull run, the Y2K problem in 2000 or the 2007 global liquidity collapse. We have seen all of it and this company has survived and prospered from every thing.

Bigger challenges will come but we know how to get over it and hence the build up in asset management which is basically managing equities. I am looking at growing this equity business or AMC business at about 25% for next 10 years. Who knows? 10 years itself is long enough. So, it is a 10X in 10 years at 25-26% kind of opportunity.

For individual entrepreneurs, it could be much bigger if you are starting from a small base.

People have called the equities and mutual fund business cyclical for the last several years and decades. Do you think that the element of cyclicality is coming down relatively and with financialisation and demonetisation tailwinds, now flows are becoming much more secular and structural?

Raamdeo Agrawal: Nature of the businesses do not change and the AMC businesses is not a complete transactional business.

But you have a stock and so it is an AUM business. Like in banking, you have the loan book or deposit book, the asset base of AMCs. Say right now, we have Rs 40,000 crore. Tomorrow, if market goes down by 10%, still I have Rs 35,000-37,000 crore. The businesses go through some kind of impact by the market cycles.

We are not saying that markets are going to be absolutely flat. Market will have its rhythm of going up and down, when it goes up, mark to market gains will be very high. When it goes down, it will bring cyclicality and mark to market will be down though it will be countered by the gross inflow.

But, unfortunately, what happens is when markets go down, even flows are negative. It is compounded and so the cyclicality becomes severe when the market corrects by 25-30% and the flow is also somewhat negative.

I would like to bring up a point which people are whispering in the market about some differences between you. The way both of you are running the company -- investing related business is handled by one and running of the company by the other. Would you like to once and for all clarify and kill those whispers and rumours?

Raamdeo Agrawal: I will tell you one more incidence. I know the market has to find something more exciting. They have to keep doing it. In 2004 or 2005, we had one rumour going that this company is sold to Sahara or something, the deal is done! I asked one of my employees what do you think of this rumour going on? He said sir how do we know what is happening in the boardroom? Then we had to hire a quarter page of Economic Times and say that sir, there is nothing this company is completely as it is and being run by two of us.

Like 2004 or 2005, this again is a figment of somebody’s imagination. That they think like that is very sad.

What do you think would have triggered this kind of talk? Just because one segment of the business did not work out exactly the way you had planned? Perhaps with hiccups it will come back?

Motilal Oswal: See, there are two things here; first is I have been hearing this kind of rumours for the last 20 years. Every two, three years somebody will say oh, there is kind of issue between the promoters and all that kind of stuff and every time they are proved wrong. There is absolutely not an iota of truth in that kind of rumour.

In fact, to come from a very respected national paper itself shows how they have gone wrong on making this kind of “rumours” or they have been part of this rumour.

But that is fine, I think, we are doing our business the way we were doing 30 years back and I can say from my side that it is not going to happen. At least in my lifetime we will not split. The relationship is so strong and it is prospering. We have seen many ups and downs in the market cycles.

We wish the same for you. We have seen you for almost over a decade together.

Motilal Oswal: Coming to Aspire, the size of the company Aspire is really not even one-fifth of the whole business. So, why should Aspire drive the whole MOFSL culture?

But we did see that even the valuation of the overall company had halved when the Aspire issue was at its peak. Now of course, it is coming back and people are understanding. How confident are you that this part of the business will return to normalcy and gallop ahead in the next two, three quarters?

I am very confident, in fact, personally I spend 80% of my time to make sure that this ship come in proper shape.